Dual pricing with purchase hassle

Abstract

Previous research indicates that hassle cost reduces consumers' utility and hurts sellers' profits. However, counterintuitively, some sellers, particularly those who sell online, purposefully increase the hassle cost of purchasing their products. Our work examines how sellers effectively apply dual pricing with purchase hassle to increase their profit and how it affects consumers' purchasing decisions and utility. Different from previous studies, we take into account both the heterogeneities of consumers' product valuations and hassle costs. We find that when consumers' hassle costs are independent of their product valuations, decrease or concavely increase in the product valuations, dual pricing with purchase hassle reduces sellers' profits. When consumers' hassle costs are convex increasing in their product valuations and the relative increasing rate is high, sellers can obtain additional profit through dual pricing. Moreover, under dual pricing, consumers' utility is non-monotonic in their product valuations. Finally, we extend our model to the case where the former full price is kept while switching to dual pricing, the case with network effects, the case where the cost to sellers of offering dual pricing is higher than single pricing, as well as the implications on consumer surplus. In these cases, our findings remain applicable.